What Optima Really Did Wrong and Why It Was Sanctioned by the SRA

 (Thanks to BusinessAttorney)

The Lawyer published a more detailed analysis of where Optima Legal Services (see here 1 and here 2) went wrong when it jumped into bed with Capita.

The SRA accused Optima of not having an arms-length relationship with outsourcer Capita and therefore had become an Alternative Business Structure (ABS). According to the Lawyer:

Optima was established in May 2006 when Capita supplied the financial backing for the OLS directors to buy the volume property arm of DLA Piper. Over the next three years Capita lent the firm in excess of £35m, enabling it to make a series of acquisitions, including ­Pathway, the volume legal property services division of Walker Morris in September 2006, and Dickinson Dees’ volume arm D3 Legal in November 2009.

Furthermore

The SRA found that ­Capita did indeed have too much control over Optima. Its loan facil­ity was too ­”onerous” on the firm and OLS’s “extensive” reporting obligations to Capita were in “excess of a normal commercial lender arrangement”. The regulator also found that five of the nine managers on the firm’s operational board, including former chief ­executive Adrian Lamb, were paid by Capita.

 So any investor must now wait, patiently, for October 2011 before they start pumping money into legal practices. Despite this brouhaha Capita

has given no indication it is about to back away from the profession. In a statement released to The Lawyer last week, it acknowledged it went further than the rules allowed but added: “Optima continues to be a business in which we’re happy to invest.”

Finally, Neil Rose, at the LegalFutures website discusses the warning shots made by the Council of the Bars of Europe (CCBE) about the threat of ABS. The CCBE, along with the ABA, perhaps, is saying that the issue could end up in the European Court and

the CCBE’s argument centres around article 11 of the Lawyers Rights of Establishment Directive, which stipulates that member states have the power to ban from their jurisdictions any law firm that is not completely lawyer-run, if it were deemed contrary to public policy to allow them to operate.

 If it does end up in the European Court then it won't bode well for ABS. The ECJ has typically taken a national pro-profession line rather than a pan-European one when it comes to the legal profession. It appears that the ECJ has a knee-jerk reaction to these moves as the Wouters and Arduino decisions clearly demonstrate. For a good analysis of this see Richard Parnham's discussion at Jotwell.com.

It's certainly not going to be plain sailing into the new dawn. There will be the occasional nightmare or siren call along the way to ruffle the waters.

What Optima Really Did Wrong and Why It Was Sanctioned by the SRA